Netflix (NFLX -0.51%) has been doing amazing things lately. During the 12 months preceding June of this year, the king of streaming content increased its revenue by 25% and continued its impressive international expansion. Things seem to be looking great for Netflix and its investors. But a new piracy application may throw a wrench in the company's plan to make its international segment profitable.
Popcorn Time: Netflix's evil twin
Popcorn Time is a free open-source media player that looks and functions like Netflix. The application was first made available in March of this year only to be taken down by the original developers and reposted by a different group of tech wizards.
Photo of Popcorn Time's interface from Business Insider
The biggest difference between Popcorn Time and Netflix is legality: Popcorn Time infringes on numerous copyright laws in most countries.
Popcorn Time isn't just-another-piracy-application. Unlike other torrent-based applications, Popcorn Time is remarkably easy to use. Users simply install it, browse its massive collection of movies and TV shows, sit back, and enjoy. Its easy to use nature may inspire a new-breed of content pirates previously discouraged by the complexity of other torrent applications.
Recently, Popcorn Time developers created a built-in virtual private network (VPN) for the software. When the VPN is activated, it makes users' computers incredibly difficult to trace. This may inspire people -- who were previously too concerned about the legal ramifications of pirating content -- to download the application.
Since the free service is so similar to Netflix, it begs the question: Will a significant number of people drop their Netflix subscriptions for Popcorn Time?
How Popcorn Time could affect Netflix's international expansion
Recently, Popcorn Time released information about the popularity of its app. It provided the number of devices on which its software was installed in the U.S., the U.K, Brazil, and the Netherlands. This data is included in the highlighted column of the table below:
The data is chilling for Netflix investors. Popcorn Time has been installed on 1.4 million devices in the Netherlands where there are only 600,000 Netflix subscribers. This means the Dutch may use Popcorn Time more than they use Netflix.
Brazilians have also taken a liking to the illegal application. Citizens of Brazil have downloaded the application on over 700,000 devices while there are only 560,000 Netflix subscribers in the country. And since Netflix was available in Brazil three years before Popcorn Time was, it seems Brazilians are adopting Popcorn Time much faster than they are adopting Netflix.
The worst part for Netflix? This is just the beginning for Popcorn Time. In only six months the application has been installed on well over 4 million devices worldwide. And Popcorn Time just announced that its app will no longer be limited to just android users as an iOS version will be available for download in the near future. Needless to say, Popcorn Time could be a big problem for Netflix.
Why hasn't Popcorn Time been shut down?
Popcorn Time is an open source media player. That means developers can copy the source code of its software and make it available on another website. Each new version of the software is called a "fork." When new forks are created, this creates a "Whac-A-Mole" effect for governmental agencies trying to stop the spread of piracy -- as soon as a fork gets shut down, another one pops up. A visual of the fork process is available below:
Popcorn Time is an open source media player. That means developers can copy the source code of its software and make it available on another website. Each new version of the software is called a "fork." When new forks are created, this creates a "Whac-A-Mole" effect for governmental agencies trying to stop the spread of piracy -- as soon as a fork gets shut down, another one pops up. A visual of the fork process is available below:
The image above show the distribution, via forks, of Linux, a free and open-source software. The image was provided by www.cybercity.biz
And the content that's available through Popcorn Time's forks, is backed by bittorrent "swarms" which are incredibly difficult to shut down. The bottom line is, unless there is an international breakthrough in piracy prevention, Popcorn Time, or an identical service, will probably be available around the world for the foreseeable future.
Conclusion for investors: don't panic
If you're a Netflix investor, there's no need to panic. Popcorn Time is spreading rapidly, but there's no proof that it has affected Netflix's operations thus far. But it might be a good idea to keep an eye out for slowing international subscriber growth over the next few years as it could be the result of developments in piracy applications.
If you're a Netflix investor, there's no need to panic. Popcorn Time is spreading rapidly, but there's no proof that it has affected Netflix's operations thus far. But it might be a good idea to keep an eye out for slowing international subscriber growth over the next few years as it could be the result of developments in piracy applications.
